The one thing that can stop Moore’s Law: Title II Internet regulation

April 28, 2015

Bret Swanson

Entropy Economics

Gordon Moore’s prediction of exponentially growing computer power, based on the silicon integrated circuit, is 50 years old this month. The technical and economic achievements of Moore’s law are astounding. When Moore used pen and graph paper to plot those first few data points in April 1965, for example, a leading-edge microchip contained 60 transistors. Today, Nvidia’s most advanced graphics chip for video games has eight billion transistors. Until the year 2000, this single gaming chip would have qualified as the world’s fastest supercomputer. Moore’s law gave birth to or otherwise enabled most of the past half century’s great innovations, including the PC, the Internet, the smartphone, and the entire world of software apps and services. What happens when we change the regulatory environment of something that is working this well? Looks like we’re about to find out.

The economic effects of the IT revolution are astonishingly broad. According to Dale Jorgenson of Harvard, nearly all US gains in total factor productivity — or “innovation” — over the past 40 years come from information technology, and between 50% and 70% of all productivity gains over the period are due to IT.

Extrapolating from William Nordhaus’s study of 200 years of computation, we estimate that the labor cost of computing — how much work it takes to purchase a unit of computation — is roughly one-trillionth of its 1965 price.

Social networking and Netflix are great, but the next generation of information advances will be profound. We are on the cusp, for example, of a new era in customized molecular medicine, based on information theory and information technology, which could unleash another 50-year wave of innovation and growth. Information technology is a chief enabler of the fracking revolution in oil and natural gas. We are only catching a glimpse of IT’s ability to transform education. And IT can also be expected to deliver major breakthroughs when it comes to connected automobiles, virtual reality, artificial intelligence, and cryptocurrencies.

There’s a problem, however. Moore’s law is at risk of stalling. But not for the commonly cited reasons, such as the fast-approaching atomic limits of silicon chips and the expensive foundries needed to manufacture them. No, the biggest threat to Moore’s law is Washington’s new effort to rein in and reign over the entire digital dominion. The Federal Communications Commission’s assertion of vast regulatory control of the Internet is a dramatic departure from the policy framework that allowed Gordon Moore, Bill Gates, Steve Jobs, and millions of others to build today’s information economy.

It’s no coincidence that the most innovative sectors of the US economy over the last 50 years — computers and the Internet — were also the freest. Moore’s law was built on a virtuous interplay of rapid innovation among hardware, software, and communications firms, who surfed an upward spiral without the fear of interruption from Washington. Heavily regulated sectors like health care and education, on the other hand, have been productivity disasters. The telephone network, similarly, was heavily regulated and has now all but withered away. And yet Washington now wants to send the Internet back in time and upset the modern virtuous circle among broadband, mobile, device, software, content, cloud, app, chip, and web firms.

A new report from PBS NewsHour got the story almost entirely backwards. Despite the fact that the US leads the world in broadband, PBS used the fact that some Americans find Internet access expensive as a justification for the FCC’s total reversal of a successful policy.

Indeed, a look at this chart from Horace Dedieu of the consultancy Asymco shows just how fast the Internet, the smartphone, and other digital technologies have diffused through the population.

bret blog

Yes, we should find targeted ways to help extend digital products to the underserved. The failure of every single person to adopt immediately the most advanced form of a technology — when in fact that technology is among the fastest spreading and most widely used technologies in history — is not, however, a reason to blow up a manifestly successful policy. Title II regulation will reduce incentives to invest in new networks and services, especially in the most difficult-to-serve geographic and socio-economic arenas.

The advocates of a government-run Internet are finally showing their hand. They used to complain that the “problem” was a lack of competition — a broadband monopoly, they called it, despite the fact that the US has moreintermodal competition than just about anyone. But it’s not really competition they’re after. They now openly embrace a monopoly, so long as it is controlled by bureaucrats in DC.

Netflix CEO Reed Hastings, for example, says we should move away from competition and embrace rate regulation. “It’s a natural monopoly in the last mile,” he said recently. “There should be one fiber or one cable going to a home with super high speed and that’s the architecture of the future. So everything around it being a utility is great for Internet companies like ourselves and it’s great for consumers.”

Imagine that. The Internet, powered by Moore’s law, just liberated us from the monopoly telephone system, fostering the rise of, among thousands of others, Netflix. Having reaped a windfall from this bounty of bandwidth, Hastings now cheers a retrograde return to the glory days of single service, quasi-government, rate-paying utility communications. A few firms like Netflix think they can gain a regulatory edge in the very short term, but they will likely regret it. Already, Google and Facebook are facing the worldwide boomerang effect of Title II. Under the umbrella of America’s embrace of Internet regulation, the European Union, unleashed from its digital regulatory ambitions, has launched anew attack on Google. India, meanwhile, wants to ban Facebook’s zero rating data plans that provide cheap access to the very poor masses.

We have something that works far better, and which is free to taxpayers: the exponential uplift of Moore’s law.

Social Heading